Stakeholder Pensions

The Government recognised that they needed "people to save for their retirement". In the late 1990's to encourage just that they introduced the "Stakeholder" concept, whereby providers would offer a low charge pension contract.

Stakeholder Pensions were originally introduced to try and boost retirement saving for those workers not on big salaries, with the emphasis very much on providing a low cost saving option.

Employers with more than 5 employees have to provide a Stakeholder plan at work should people want to contribute although as yet there is no rule to make employers actually contribute to a pension plan for their workers.

The idea of large numbers of people flocking to take out these plans has failed to turn into reality and a new system of Personal Accounts with automatic enrolment is planned to be introduced in 2012 to try to correct this.

A Stakeholder Pension is a type of Personal Pension plan that must conform to certain rules:-

• The minimum contribution can be as little as £ 20 a month gross.

• You can contribute up to £ 3,600 a year even if you have no earnings

• There must be no penalty for reducing or stopping contributions.

• There must be an option for the money to be automatically moved to safer funds as you get closer to retirement.

• There must be no charge to transfer into or away from a stakeholder plan.

• The most a company can charge for running plans that were taken out after 6th April 2005 are capped at a maximum of 1.5% a year for the first 10 years and 1% a year thereafter. Plans taken out prior to that date were capped at 1% a year.

Because you don’t have to be earning to have one, it means that parents or grandparents can start plans for children at any age and this can give a really big boost to their eventual pension because it has that much longer to grow.

It also means that they can be especially attractive for non taxpayers in retirement (so long as they are under 75) if they are looking for a guaranteed income with help from the taxman.

While they do offer a relatively low cost method of saving for your retirement, they may not be the best option for everybody. For example some people may want to have a wider choice of funds to invest in, perhaps with a choice of manager, where the costs may be higher than a stakeholder. After all, the size of your final pension will depend on how well your money is invested until you retire and that could be many years hence. Whilst there are many plans available with charges similar to, or lower than, a stakeholder, only a stakeholder plan will guarantee to cap the charge.

A major benefit from Stakeholder Pensions is that charges in general for Pension Plans have fallen and most companies now have much more transparent contracts so that you can see what you are paying for and decide whether you are getting value for money for any extra features. Our advisers will be happy to discuss this and help you choose the right plan for your needs or make sure your existing arrangements are appropriate.

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